Opposing Sides: How Previous Collaboration Can Cost Companies Headed to Litigation
Research by Jose Uribe and Maxim Sytch finds that past relationships can lead to longer court cases, greater lost market value.
Exploring how a collaborative history between professionals can turn sour, researchers analyzed more than 21,000 lawyers in 4,900 intellectual property lawsuits filed over 15 years.
They found that past collaborations led to longer and more contentious litigation and lost stock market value for clients.
22% of the cases escalated to trial, 63% were settled out of court, and the remaining 15% were transferred to a different court or consolidated.
When opposing lawyers had no prior history, the probability that a case would escalate to trial ranged from 16-18%.
When opposing lawyers had collaborated previously, the average likelihood of escalation to trial rose to 27%.
Prior collaboration also had an impact on the case duration: — less than three years without prior collaboration between opposing counsel and an extra 30 months when they collaborated before.
The average market value lost for adversarial clients represented by lawyers who previously collaborated with opposing counsel exceeded $120 million.
"Taken together, our results suggest that in the presence of situational triggers, collaboration with opposing counsel tends to destroy stock value for clients," said Uribe, assistant professor of management and organizations. "This destruction of value, however, appears to be significant only when the situational trigger is adversarial clients."
The study documents how a history of collaboration between rivals — instead of facilitating future collaboration — can turn into a liability and escalate conflict between them. In such circumstances, when past collaboration with a rival invokes loyalty concerns from new clients, people may respond with uncooperative behaviors to demonstrate loyalty to the client.
"These dynamics take place when pressures from stakeholders for unwavering loyalty are likely to be particularly strong, such as when the stakeholders are adversarial or intensely competitive," said Sytch, an associate professor of management and organizations. "Our study indicates that such compensatory behaviors ultimately impede cooperative interactions, escalate conflict and result in lost value."
The researchers developed this theory for general scenarios in which contesting principals were represented by professional third-party agents. Such scenarios involve contesting companies being represented by bankers, lawyers, consultants or lobbyists.
A history of collaboration with opposing counsel can require lawyers to manage the clients' loyalty impressions and can also heighten lawyers' concerns about their reputation as zealous advocates of their clients' interests. The resulting compensatory behaviors, which reduce cooperation with opposing counsel, are intended to both reassure the client of the agent's loyalty and protect the agents' reputation for loyalty.
"It is important to note here that threats to one's loyalty can evoke particularly strong compensatory responses. For example, after Japan attacked Pearl Harbor in 1941, Japanese-Americans living in Hawaii volunteered in large numbers for U.S. military service," Kim said.